NEWS ANALYSIS : Firms Uniting for Attack on Compulsory Coverage : Health care: Small-business owners, insisting they can’t afford it, lead opposition to Clinton plan.
At the Wedding Belle Bridal Shoppe in Highland, Ill., owner Carolyn McDonald fears for her future if President-elect Bill Clinton carries through with his promise to make businesses provide health insurance for their employees.
McDonald has only two part-time workers, a sales clerk and a seamstress, but she says the cost of coverage would be prohibitive for her low-volume operation. “How can I provide health insurance for my employees if I can’t afford to go to the doctor myself?” she laments.
McDonald is just one of the legions of small-business owners who are expected to be at the forefront of organized opposition to Clinton’s ambitious blueprint for health care reform. Already trade groups representing small businesses are sounding the alarm.
Their battle cry is simple: Mandatory coverage may sound great, but small businesses just can’t afford it. “A federal mandate is intolerable,” declares John Paul Galles, executive vice president at Small Business United.
The battle over mandatory coverage will determine the direction of health care reform. At least two-thirds of the 35 million Americans who lack health insurance are full-time workers and their families, and Clinton has promised to find a way to cover them.
Last week, California voters decisively rejected an initiative sponsored by the California Medical Assn. that would have required employers to provide health coverage, and the fight on the national level could be every bit as bitter.
“We will pass a national health plan,” Clinton vowed during the campaign, promising a sweeping program with “rigorous health care cost controls and a basic package of affordable health care for all Americans.”
Although Clinton has not yet spelled out the details, his plan is expected to require all employers to provide insurance for their workers. He has promised to give small businesses several years to enter the program, and to provide tax credits to help offset the cost.
But small-business owners are not persuaded. “What good is a tax credit if you’re not making any money, and the economy is deep in recession?” asks Terry Hill, spokesman for the 500,000-member National Federation of Independent Business.
The campaign against compulsory coverage is not limited to mom-and-pop proprietors. Small businesses are being joined by a number of big players in the food and lodging industry. Fast-food firms, restaurant chains, hotels and motels all tend to have rapid employee turnover and large numbers of low-paid and part-time workers with no insurance coverage.
International House of Pancakes, Olive Garden and TGIFriday’s are among 35 companies bankrolling a new coalition, the Employment Policies Institute, that intends to promote alternatives to mandatory insurance coverage.
American Express has joined the coalition, concerned that its restaurant clients could lose substantial business if they are forced to boost menu prices to pay for health policies. It estimates that mandatory coverage would cost about $3,000 per employee per year, a big burden in a business where waiters get about $2.13 an hour, before tips.
While most small firms and many larger concerns are expected to fight mandatory coverage, the business community’s traditional unity on matters involving increased government intervention in the private sector seems to have crumbled.
Some giants of industry, despairing of efforts to control health care costs by themselves, say they are ready for Washington to step in. Their reasoning is that universal coverage will level the playing field by forcing all competitors, large and small, to bear the cost of health insurance. In addition, they want the government to help control costs with a tough federal ceiling on health care spending.
The split in the business community has created some unusual political alliances. Big employers such as Safeway, Bethlehem Steel, Chrysler, Xerox, Lockheed and Southern California Edison are marching alongside advocacy groups such as the Children’s Defense Fund, the American Assn. of Retired Persons and unions representing steelworkers, teachers and service employees.
These divergent groups have joined to form the National Leadership Coalition for Health Care Reform, the strongest advocate of a “play-or-pay” health care system. Under that idea, businesses would either “play,” by providing health insurance for their workers, or “pay,” through a new payroll tax that would finance a public fund to cover the uninsured.
The impending struggle has split the insurance industry itself. Large insurers appear willing to consider major reforms of the existing system, while smaller companies seem more inclined to preserve the status quo. More than 1,500 firms currently sell health insurance, and critics say that many are “cherry-picking”--providing insurance only to employers with relatively healthy work forces.
Aetna, a giant insurer that covers 12 million Americans, has just resigned from the Health Insurance Assn. of America, the industry’s primary trade group, in a dispute over health care reform priorities.
“We felt if we were going to make some progress in health care reform, it had to be beyond the context of strictly insurance,” says John Hawkins, Aetna’s assistant vice president for health communications. “We needed to build bridges to other coalitions, to a much broader base, to our customers, to the companies we serve, to unions, retirees and consumer groups.”
The battle over health care reform will be waged not only in the halls of Congress, but in corporate board rooms across the land. Private sector employers are the primary source of health insurance for more than 190 million Americans, workers and members of their families.
The biggest impact will be on the smallest firms. About 98% of employers with more than 100 workers already offer health benefits. But only 27% of firms with fewer than 10 employees provide coverage, according to the Health Insurance Assn. of America.
It cost an average of $3,573 to cover a worker last year under traditional indemnity plans that give employees unrestricted choice of doctors, according to a survey by the A. Foster Higgins consulting firm. Less expensive policies are available, but they generally require workers to pay bigger deductibles or limit their choice of health care providers.
The cost of providing health care coverage is rising at three or four times the general rate of inflation, the Higgins firm calculates. With health coverage accounting for an expanding share of payroll costs, less money is available for wage increases or other benefits at medium-sized and large firms.
“Health costs continue to rise seemingly beyond everyone’s control,” says Ellen Goldstein, director of health policy for the Assn. of Private Pension and Welfare Plans, which represents major corporations with extensive benefit programs. “There is a tremendous sense of a need to change and move. . . . business, and especially big business, wants a system that is leak-proof, that covers everybody and pays for health care in a rational way.”
The “leaks” resented most by big business are the higher bills they pay for their workers as a result of holes elsewhere in the health care system. Hospitals charge more for privately insured patients because government programs--Medicare for persons over 65 and Medicaid for the poor--have sharply restricted reimbursements. Hospitals also boost the bills of insured patients to help cover the cost of free care for patients with no insurance.
This cost-shifting increases health care costs for manufacturing firms by an estimated $11.5 billion annually, according to the National Assn. of Manufacturers. After a spirited debate last year, NAM decided to stick with its traditional opposition to mandatory insurance coverage. But many members are clearly resentful that some firms, mainly small businesses, receive a free ride by not providing insurance to employees.
In California, the physician-backed initiative calling for mandatory coverage was defeated by an uneasy alliance of small businesses, insurance companies and consumer groups.
Proposition 166 lost because voters “bought the argument that it would have a negative impact on jobs in California,” says Dr. Richard Corlin, president of the California Medical Assn. and a member of the American Medical Assn. board of trustees. He vows that doctors will continue to wage the fight, but on a national level.
“We need to educate the public that health care reform is coming one way or another,” says Corlin. “There are only two ways of paying for it: on a tax basis or through an employer mandate. And we believe the employer mandate is least expensive.”
But the small business community, having prevailed in California, has been emboldened to take an uncompromising stand against a national coverage mandate.
“I expect the pressure to be on us pretty heavy,” says Hill, of the National Federation of Independent Business.
“Clinton’s first priority is to create jobs, and any mandate will inhibit job creation,” argues Galles of Small Business United.
Restaurants are particularly vulnerable, insists Richard B. Berman, executive director of the Employment Policies Institute. “People will still eat out, but if the price goes up enough, maybe they eat out less and cut their spending 20%. And that means a lot of places go out of business and workers lose their jobs.”
McDonald, owner of the Wedding Belle Bridal Shoppe, agrees that “it is unconscionable that some people cannot have medical treatment” under the current system. But she insists that the best solution is to “spread the cost so it is not so painful” for small businesses such as hers.
McDonald says she can barely afford the health insurance policy she purchased for herself, which only covers catastrophic expenses. The plan requires her to pay the first $2,500 of any medical expenses she incurs each year, plus 50% of the next $2,500. She says she manages to pay the $90 monthly premiums, but tends to forgo routine medical care because the deductible is so high.
Not long ago, McDonald says, she hurt herself when her dog dragged her off the porch of her home. “I fell and bruised myself,” she recalls. “My friends said, ‘Go to the emergency room,’ but I said, ‘No, I just can’t afford it.’ ”
Another opponent of mandatory coverage is David Harper of Chatsworth, Calif., who just sold his business as a broker of printing work. Harper was paying $360 a month for medical coverage for himself and his wife. “I can’t afford to get insurance for the employees, not with the margins in this business,” he says.
Clinton’s health advisers say they intend to provide tax credits to ease the financial burden of mandatory coverage on firms such as the Wedding Belle and Harper Business Products. But any special consideration bestowed on small businesses will place a heavier burden on others.
“Everybody recognizes that if you have a mandate to purchase insurance imposed on business, you have to give a substantial break to some employers,” says Walter Zelman, special deputy to California Insurance Commissioner John Garamendi, who has developed his own universal coverage proposal. “The questions are tough ones: How big a break, and to which employers, and where do you get the money?”
For some small businesses, profit margins are so thin that mandatory insurance could cause them to lose money, says Mark Weinberg, executive vice president of Blue Cross of California, which has been trying alternative approaches to provide low-cost policies.
“We’re experimenting with pricing thresholds,” says Weinberg, citing a “safety-net” plan that costs as little as $36 a month per employee. The policy is cheap because it excludes office visits to the doctor, except for prenatal care for pregnant women. Coverage includes hospital care, after a one-day deductible, and offers up to $5 million in lifetime benefits.
Weinberg argues that companies such as Blue Cross should be encouraged to offer private-sector solutions for the millions of uninsured workers at small businesses before the government imposes the heavy hand of national regulation.
The question is whether Clinton, Congress, and consumers and big businesses angered by health bills, have the patience to wait.
